Donating to Beacon using Donor Advised Funds

Establishing a philanthropic fund was once considered a device for only the ultra-wealthy. But today, even small-scale givers can put money into an account, let it mature, and then disburse it gradually over time to the charitable organizations they wish to support. Donor-advised funds (DAF’s) are becoming even more popular due to recent federal tax reform that makes itemizing deductions for charitable giving less common.  Since Congress passed one of the most sweeping tax law changes in decades, the three major providers of donor-advised funds — Charles Schwab & Co. Inc., The Vanguard Group Inc. and Fidelity Charitable — report a high volume of new accounts, contributions, and grants to charitable organizations.

The option of creating a DAF appeals to a broad range of charitable supporters.  For instance, a retiree might open a DAF so that he or she could continue giving after leaving work. Or, a committed philanthropist might decide to move from a private foundation which is too costly or burdensome, opting for a cheaper giving tool with more flexibility.  Many DAFs are advised by families who have pooled their charitable resources and view charity as a communal endeavor.

Jar of Money

Donor-advised funds offer a simple, efficient and effective way for individuals to help themselves and the charities they wish to support.

 

Here’s how it works:

  1. A donor contributes to a DAF and takes an immediate tax deduction. The charitable assets are now maintained and operated by the sponsoring organization, which has legal control over the funds composed of contributions made by individual donors. However, the donor, or the donor’s representative(s), retain advisory privileges with the respect to the distribution of funds. The donor is often called a DAF advisor.
  2. The DAF advisor can recommend how the assets in the DAF are invested; proceeds grow tax-free.
  3. The DAF advisor can recommend grants to the nonprofits he or she wishes to support. The sponsoring organization will conduct due diligence and, if that research shows the organizations are eligible to receive tax-deductible contributions, issue the grants to the charities.
  4. The donor can make additional contributions to the DAF.

Many donor-advised funds have zero or low set-up costs*, and donors get the tax deduction immediately. The funds also take pressure off advisors because clients can access their accounts online anytime they wish to make grants.  DAF’s allow donors to contribute cash, appreciated assets, or investments that have been held for a year or more without paying capital gains taxes. Taxpayers can take one large deduction in the year of the contribution and then spread out distributions to the charities of their choice over multiple future years. For some people who will no longer itemize their deductions annually under the federal reforms, DFA’s have separated the tax decision from the giving decision.  Taking an eligible tax deduction all at once, still allows a DAF advisor to decide where to give later or to give over time.

Some other non-tax benefits include:

  • instead of having to personally track all their giving, advisors can use DAFs as a centralized hub to simplify their philanthropy. One contribution can fund multiple donations to an advisor’s favorite charity or charities.
  • the minimum amount required to start a donor-advised fund is generally much less than the minimum amount recommended to establish other charitable vehicles such as a private foundation, supporting organization or charitable trust.
  • most DAF’s can accept complex assets such as real estate or venture capital investments that an operating charity may not be easily able to handle.
  • donors can establish a fund as a memorial to honor someone, or start a legacy of giving by letting their children help decide which grants to recommend.

As with all gift planning, you should seek individual guidance from your accountant, lawyer and/or financial advisor before opening a Donor-Advised Fund account.  Before deciding if a DAF is right for your situation, evaluate a sponsoring organization to make sure it supports your interests, values and the type of asset you are considering as a funding source.  If you decide that a DAF is a good vehicle for your philanthropic activities, remember that you can help create more opportunities for people with disabilities by making a gift from your DAF to Beacon Group on your timeline.

—-

* Sponsoring organizations generally assess an administrative fee on the assets in a DAF. These fees vary by the charity that sponsors a DAF program. Specific policies vary by sponsoring organization.  The information in this article is for educational purposes only and is not to be construed as financial planning, tax, legal, or accounting advice.